First and most importantly in any contract situation is that all contracts are negotiable. As a matter of fact everything is negotiable, even in insurance contracts. Many are surprised that insurance contracts can include some good addendums that will help the client should trouble arise. (One of those is actually the choice of counsel where the insured can choose its own counsel should litigation arise because many times the insurance company chooses the lawyer who is actually paid and motivated by the insurance company as opposed to the client). It seems to be easy to put a contract together, because every contract that can be thought of is on the internet. One can even go to an office supply store and buy a CD that has essentially every business contract they may need in the CD. These used to be in printed forms that were at the office supply stores before the internet. I have spent much of my career in litigation of undoing contracts that were done in this manner and litigating issues that could have been easily resolved had the contract been written well in the first place. Of course this is not necessarily every litigation case because sometimes contracts are breached even though the terms are very clear and identifiable. In drafting contracts, businesses must take the approach that even though everyone knows the terms and everyone is friendly, the contract at some point in time is going to be breached and the parties will be in litigation. With this approach, it is quite likely the contract will never be breached and the parties will have a great relationship in their business dealings.
Details of the Deal
It goes without saying all the details of the deal must be included. In writing these details, the written language of the contract must be as if someone not familiar with the business can get an understanding of the deal so that there is no ambiguity. Existing ambiguity in a contract is one of the essential focuses of litigation. The details of the deal need to be very clearly defined and very clearly understood so that a third-party in reviewing the contract without any legal knowledge or with any explanation of the legalities can understand the contract. Essentially, it needs to be written in such a way that your lawyer can explain the legal terms to your neighbors and your neighbors understand the deal (i.e., a jury trial).
Notices and Default Provisions
This refers to what notices will be sent and where they are sent along with the necessary period of time to cure any defaults that occur. Defaults are not just monetary in contracts, but there are also non-monetary defaults. These are quite frequently hidden and not negotiated, but become very important in the future. Parties must address under what circumstances default may occur and how those defaults can be cured. Timing needs to be considered on payment of money and when payments will be required upon notice and whether or not notice should be given in the first place. There also must be consideration of non-monetary defaults where there are contractual requirements imposing duties on each party. There should be some reasonable notice that is given to each side in order to cure any non-monetary defaults so that there is no litigation on the breach of contract.
Boiler Plate Language Is Not Boiler Plate
A lot of contracts include boiler plate language which is periodically not reviewed nor considered with respect to the applicable law. Boiler plate language is found in forms and contracts that are continually used as forms. Quite frequently, these boiler plate clauses become stale and do not comply with current legal cases nor current statutory and regulatory authority. Every word of the contract including the boiler plate provisions should be reviewed to make sure they comply with the law, and that they also work according to the intentions of the parties. Although the clauses may be very familiar, they must be drafted and crafted accordingly so that they work as intended.
This is an area that is quite frequently overlooked. Litigation clauses can include what is referred to as a choice of law which indicates which state law will apply in the event of a breach of contract. The litigation clauses may also include a forum selection which determines where the parties would litigate should something occur. Further, litigation clauses can include waiver of jury trials and requirements for arbitration. Each party needs to review their bargaining power to determine should these clauses be necessary and should they be involved. Larger companies frequently require arbitration whereas sometimes this is beneficial and sometimes it is not to the smaller company. Arbitration can be just as expensive as litigation and juries can be a lot friendlier than some arbitrators. Serious consideration must be reviewed should a breach of contract be turned over to twelve people as opposed one person who will be completely unknown to the parties at the time of arbitration. Arbitration is very attractive when the issue concerns complicated factual circumstances that would be difficult and costly to present to a jury such as in some commercial and construction litigation cases. Consideration should be reviewed for any litigation clauses that are placed in a contract.
Stephen Fuller is the managing partner of Fuller Sloan LLC and has practiced in business litigation and consulting for 37 years and has over 25 years representation of the founder of one of the largest sit-down casual restaurants in America. For more information, send Mr. Fuller an email.